Tuesday, February 07, 2012

Stocks Rising Slightly Into Final Hour on US Economic Optimism, Euro Bounce, Short-Covering, Tech Sector Optimism

Broad Market Tone:

  • Advance/Decline Line: Slightly Lower
  • Sector Performance: Sector Performance Mixed
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 17.78 +.11%
  • ISE Sentiment Index 104.0 +15.56%
  • Total Put/Call .80 -4.76%
  • NYSE Arms 1.08 +35.81%
Credit Investor Angst:
  • North American Investment Grade CDS Index 94.64 +.26%
  • European Financial Sector CDS Index 155.69 -1.87%
  • Western Europe Sovereign Debt CDS Index 324.07 -.79%
  • Emerging Market CDS Index 256.17 +.91%
  • 2-Year Swap Spread 29.75 +1.75 bps
  • TED Spread 44.25 -1.75 bps
  • 3-Month EUR/USD Cross-Currency Basis Swap -72.25 +.75 bp
Economic Gauges:
  • 3-Month T-Bill Yield .07% unch.
  • Yield Curve 172.0 +6 bps
  • China Import Iron Ore Spot $144.70/Metric Tonne -.10%
  • Citi US Economic Surprise Index 77.60 -2.1 points
  • 10-Year TIPS Spread 2.20 +2 bps
Overseas Futures:
  • Nikkei Futures: Indicating +38 open in Japan
  • DAX Futures: Indicating +5 open in Germany
  • Higher: On gains in my Retail and Tech sector longs
  • Disclosed Trades: Covered all of my (IWM), (QQQ) hedges and some of my (EEM) short, then added some back
  • Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 trades near session highs, despite less financial sector optimism, profit-taking, global growth fears, rising energy prices and Eurozone debt angst. On the positive side, Energy, Networking, HMO, Retail, Restaurant and Tobacco shares are especially strong, rising more than +.75%. Tech shares are relatively strong again today. Copper is up +.33% and the UBS-Bloomberg Ag Spot Index is down -.41%. Oil continues to trade poorly, despite today's bounce, given the stock rally, euro rally, rising interest from speculators, falling euro debt angst, subsiding emerging market hard-landing fears, improving US data and rising Mid-east tensions. Major European indices were slightly higher on the day, led by a +.62% gain in Italian shares. The Bloomberg European Bank/Financial Services Index rose +.6%. German industrial production fell the most since January 2009 in December, dropping -2.9%. However, investors continue to price in another Eurozone debt crisis “can-kicking” and stabilizing economic activity in the region. The Spain sovereign cds is falling -3.1% to 343.67 bps, the Italy sovereign cds is falling -3.55% to 373.0 bps, the Portugal sovereign cds is down -5.25% to 1,207.04 bps. On the negative side, Coal, Oil Tanker, Oil Service and Biotech shares are under pressure, falling more than -.75%. Financial shares have underperformed throughout the day. Oil is rising +1.55%, Lumber is falling -2.4% and Gold is jumping +1.5%. The Portugal sovereign cds is still up +12.0% in less than 3 weeks. Lumber is down -2.0% since its Dec. 29th high despite the better US economic data, more dovish Fed commentary, improving sentiment towards homebuilders, equity rally and decline in eurozone debt angst. Moreover, the Baltic Dry Index has plunged over -60.0% from its Oct. 14th high and is now down over -50.0% ytd. The 10Y T-Note Yield is rising +7 bps today to 1.98%, but remains a concern considering the recent stock rally, falling Eurozone debt angst and improvement in US economic data. The Philly Fed’s ADS Real-Time Business Conditions Index has stalled over the last month after showing meaningful improvement from mid-Nov. through year-end. The Western Europe Sovereign CDS Index is still fairly close to its Jan. 9th all-time high. The TED spread, 2Y Euro Swap Spread, 3M Euribor-OIS spread and Libor-OIS spread have improved, but are still at stressed levels. China Iron Ore Spot has plunged -20.0% since Sept. 7th of last year. Shanghai Copper Inventories are up +485.0% ytd to the highest level since March of last year and approaching their April 2010 record. Johnson Redbook weekly retail sales rose +2.5% this week versus a +2.7% gain the prior week. This is subpar for a recovery and the weakest reading since April 5th of last year. US stocks continue to trade very well. Almost all negatives are currently being ignored as the “buy every dip” mentality remains firmly in place. While this can continue a while longer, European economic data must begin to trend notably better over the coming months for the S&P 500 to break above approaching technical resistance, in my opinion. Given the austerity measures that have yet to take hold in the region, this remains a large question mark. One of my longs, (AAPL), continues to trade very well as it made another all-time high. I still see substantial outperformance for the shares over the intermediate-term. As well, since I added to my (GOOG) long around its 200-day, the stock has bounced strongly as it approaches its 50-day. I expect this recent outperformance to continue over the intermediate-term as the Facebook IPO draws attention to GOOG’s reasonable valuation and fundamentals improve in the second half of the year. For an intermediate-term equity advance from current levels, I would still expect to see further European credit gauge improvement, subsiding hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices and higher-quality stock market leadership. I expect US stocks to trade mixed-to-higher into the close from current levels on US economic optimism, short-covering, a bounce in the euro and tech sector optimism.

1 comment:

theyenguy said...

Both the weekly and daily chart of Google, GOOG, show completion with a three white soldier patter. Th stock is approaching strong resistance at it's 50 day moving average. The stock has completed its final rally. All stocks are now manifesting Neoliberalism's death rattle rally which has come through the ECB's LTRO ponzi financing.

The seigniorage of fiat money is ending and the seigniorage of diktat is commencing.

I encourage all to dollar cost average and take possession of gold bullion.

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